Handling Clients Who Won’t Pay

A nagging problem this summer has been handling a client who ended up not paying me for half the consulting work done on his site. He’d paid half up front, but did not follow through when I sent him the bill for the remaining work.

When I first contacted him about his not having paid, he was open to the suggestion that we split the remaining half in half itself to be paid over two months. He said that finances were a bit tight after a recent move. After that e-mail, I sent him the invoice for the June half. That’s the last I heard from him. I tried to make contact numerous times, but he and his fiancée (with whom I’d also been communicating about the site) ignored me.

In the end, 60 days after the first unpaid invoice and more than 30 after our last e-mail exchange, I repossessed all the unpaid work done on his site.

I have backups in case he pays. In the final letter, I let him know again about my willingness to work on another payment plan and my ability to restore the site once paid in full. I can restore the site within minutes. But something tells me I’ll be listing my neatly-itemized list of unpaid work in my losses next tax season.

This got me thinking about how other freelancers and I handle our billing and how I can best prevent this sort of thing in the future.

What are a Freelancer’s Billing Options?

1) Ask for full payment up front.

This would be the easiest, right? You don’t have to worry about whether or not you’ll get paid or figure out a complicated system. While you might be able to get long-time clients to agree to it, they’re not the ones you’re worried about. The people who you don’t trust yet also don’t trust you yet.

If you can get a client to agree to a full payment up front, hold onto the money so you can refund it if unable to do the work.

2) Get half up front and release the work when it’s done and the 2nd half is paid.

This works better for some things than others. For example, I know a woman who designs swimsuits for competitive swimmers. She has the physical suits until paid, so it’s easy for her to ask for half (or nothing) up front and then receive the rest on delivery.

It’s harder when you’re selling your time or something you’ve created in a digital format. For instance, I wouldn’t have been able to repossess the site if my deadbeat client had taken the trouble to change the passwords and lock me out.

3) Get half up front and bill as you go.

This would have been a good option in my case. After finishing the part I’d been paid for, I could have billed for the second half, or billed item-by-item.

When you bill item-by-item or a couple hours at a time, it can get very tedious for you and the client. However, after delivering the first half to the client’s satisfaction, I don’t think it’s unreasonable to ask for the second half or part of the second half.

4) Get half up front and take your chances.

This is what I did. In a number of cases it’s worked out fine even with brand new clients. Some have been good one-time engagements, others have gone on to become good long-term clients. But sometimes it doesn’t work at all.

I’m not going to go into the details of an escrow system (the link above does a pretty good job of explaining it). A basic escrow system is a third party that holds the client’s money until the client authorizes the freelancer to withdraw it. But the freelancer has power too, knowing the money is there and knowing that the client can’t just cancel the escrow, the freelancer has to agree to release the money back to the client. It forces the client to prove they can pay.

This might have been a good idea in my situation, since this was a large and expensive project.

6) Bill as you go.

With my longtime, trusted clients, I tend to bill as I go. We determine the cost beforehand, whether it’ll be an hourly rate or a one-time fee, and I send them a bill when we’ve reached a pre-determined point.

I don’t recommend this method with new clients unless you’ve agreed on a very low invoicing threshold, perhaps invoicing every 2 hours.

Is One Payment Method Right for All Clients?

The biggest mistake I made here was moving him too quickly into my mental list of regular, trustworthy clients (you know who you are, you awesome people!). There are a number of people, some who’ve entered into contracts with me, others who haven’t, with whom I have an ongoing professional relationship. Because I’m used to working for them, billing, and then being paid immediately, I put a little too much trust in him based just on his initial payment of half the cost plus his friendly interactions.

What are Your Options if a Client Doesn’t Pay?

What if your client, like mine, simply won’t pay and has cut off contact?

1) Write it off.

This may be the best for your mental health. Thinking about this person who owes you, wondering if you’ll get paid, wondering what to do next–it can eat away at you and your self-confidence. At times, it was hard for me to respect myself and my work.

Carefully document the loss so that it’ll be worth something to you at tax time.

2) Repossess.

Repossessing the site did wonders for my self-confidence. If you still have access to your work, carefully remove everything that hasn’t been paid for. Don’t remove anything you were already compensated for, that’s just revenge. Document what you took and send the information to the client. Let them know if/how they can have it when they’ve paid (if possible).

Don’t frame this as revenge or as taking from them. Frame it in your communication as repossessing the work because of non-payment.

While this is not professional tax advice, I believe you can still write off a loss against your business income even if you were able to keep the other person from using the finished product. You still lost your time and materials in creating it, even if they won’t get to use it.

3) Sue.

This is why small claims courts were invented. If your loss is great enough and you think a small claims court can make the person pay up (i.e. the person definitely has the money), you can sue. It’s possible that merely filing a claim will spur the client into paying.

You can find information about filing small claims in the 347 section of libraries that use the Dewey Decimal system (try the Reference section for the most up-to-date info). The NOLO series of books even has information about doing it without a lawyer. Laura of Green Panda Treehouse has written a Small Claims Filing FAQ based on her own experience in a small claims court.

What about you?

Have you ever had to deal with someone who refused to pay you after you’d done work for them? What did you do, and how did it affect your actions in similar situations afterward?

We do wedding photos and we once had a client who ordered hundreds of wedding photos and then never paid for them. We finally threw them away after a year or so. From that point on, we only place orders AFTER recieving payment. For weddings, we ask for a downpayment, and for the balance to be paid before the wedding day. If the client still doesn’t pay the full balance, we hold the photos “hostage” – this usually works pretty well. We also use a clear contract that state all of the above in detail and we go over it with the client – that way everyone agrees and we have some sort of official paperwork if things go awry.

Twice, I’ve sued magazine publishers in small claims court for nonpayment. Once I got my money; once I didn’t. When you sue someone out of state, you may win but there’s not a thing you can do to collect. It costs more to hire a collection agent than the claim is worth. All you get is the sour satisfaction that a court judgment dings the deadbeat client’s credit record…and that won’t buy your groceries.

Alas, you can’t repossess an article that’s already been published. This sort of treatment of contract writers is the main reason I no longer write on a freelance basis. But for those who do, it’s important to remember that “payment on publication” usually means “payment never,” and even arrangements in which the publisher pays when they receive the article often result in little or no payment.

When dealing with editorial clients now, I ask to be paid 1/3 up front, 1/3 about halfway through, and 1/3 when the project is finished. That way if the client is going to flake out, you will have done only about a third of the project free of charge, rather than the whole thing.

Have to disagree with previous visitor who said there’s nothing you can do to collect. In my state, you file the claim, and by the way, if the other party fails to respond to notice of the lawsuit and file a response, you win by default. Once they enter a judgment in your favor, you may choose, for a $35 fee, to garnish their wages to ensure you collect on the judgment. Absent that, the court is not in the business of enforcing your collection, so it’d be a pity to win a lawsuit and then not bother to go the extra step to ensure payment.

If you still don’t get paid, say they went bankrupt, my state has a special fund where you can recoup at least part of your loss. it’s better than nothing.

I’m in the process of a small claims case right now. It’s mostly a waiting game. I would recommend it if you have a clear reason to believe you’ll win. It just takes time.

My recent dealings with freelancers working on my site is that they do the work and then when I pay them they release the site live. Any little maintenance that still needs to be done they continue to do so. Granted I am a good client, I understand not everyone is the same way. So for you getting half up front is great so you aren’t royally screwed.

My margins are high enough that half front half later covers me even if they ditch. Otherwise I bill retainer on the first and will work as promised during any 30-day period which has been paid for. If that means I quit in the middle of a job I will, although I haven’t had to so far.

A very troubling experience because it attacks your sense of your work’s worth. Of course, it is clear to many that your work is high quality and any who don’t pay you are either in serious trouble (when they should work it out with you) or deadbeats. I wonder how escrow works at the freelance level. I’ve only dealt with it buying houses and putting aside tax and insurance money for a mortgaged house. There is done by people who dealing with finances at that level is their profession. Paypal hints by reference that they might agree to do escrow but there is no real encouragement. It sounds like a niche that might be of value. Obviously the escrow holder would charge a fee. Part of the cost of doing business.

This article has been selected as a top finance article for July 29. Visit the BestBlogPosts website to vote for it to be the best post of July/August. The winning blogger will receive a prize after August 31.
.-= BestBlogPosts.net´s last undefined ..If you register your site for free at =-.

@Erica that sucks when you’re holding the photos. Like design for a specific site, they may have helped you develop a new skill…but they’re not resalable themselves. Sounds like you’ve worked out a good solution.
@Funny I like your 1/3 idea! The internet is great for helping us find clients from all over, but there’s something to be said for walking into a local office and demanding payment for the work you did for them.

@Kacie Shame indeed. I considered more spiteful responses, such as creating a well-SEOd site with their names, but didn’t. In the end, revenge wouldn’t serve me well.

@fern Funny was talking about out-of-state. I don’t know how different it is to in-state, but I agree that it can be worth pursuing. Especially since no response = default.

@Craig sounds like a good system. I’m sure you’re a good client. 🙂

@Michael thanks for sharing that. Hearing what other people do helps me plan for the future.

@4P yep, billing people isn’t always fun. Though it’s great to be paid! 🙂

@Dad there are some places that do it, but yes there’s a fee involved. Also some hassle. It’s worth doing on projects where a lot of money is involved, but less worthwhile for smaller things. In this case, it might have been a good idea.

It’s a hassle, even if you’re in the offender’s state and close to the courthouse, to pursue someone for a few hundred dollars. And can you garnish the wages of a person who owns a business? The business owner doesn’t exactly get “wages,” unless his business is an S-corporation.

In any event, I was told I had to hire a process server to press my claims any further, and as I recall the procedure involved my having to show up at the courthouse myself. Given that the court was in upstate New York and I was in Arizona, that wasn’t very practical. The amount I was owed was less than the cost of a plane ticket or an agent in New York state.
.-= Funny about Money´s last blog ..Best of July 2009 =-.

Excellent article, MM. I don’t often do freelance writing or services any longer, but I know a lot of people who do and who have gone through these issues. I’ll recommend they read this and set up some standards for their business.
.-= Patrick´s last blog ..A College Degree Does Not Guarantee a Job =-.

Wow… this article really came in handy for me. I’m still trying to get my client to pay me but his business has fallen through and he isn’t communicating with me at all. I really don’t want to take it to court but he owes me a lot of money. When I started working for him, he had just purchased a VERY expensive car so even though his business has collapsed, I still feel like he should shell out the cash for my hard work.

I know how this feels and boy does it suck. I got hip to these deadbeat clients and started to one up them. I register the domain name to design the site and prove SEO and I register one that if not paid for can be used with another client. My clients only get their DN when full payment is made. If no payment is made I complete the site and take it to their competition. No love lost.

I had a deadbeat that pleaded for break after break. I extended his payment time three times, then lowered the fee for a project. After the service was completed and delivered, he announced he was not going to pay. After trying to collect again to no response, I reverted part of the project to its previous state until he paid, for which he started harassing my business online and placing poor reviews wherever he found my site’s name. I finally placed links to his rants and lies (and my responses) on his business’ ratings.

Moral: Don’t take in clients that plead for a lots of breaks. They are usually not worth your time.

He asked me to sign an NDA which I haven’t but he thinks I did so I have the upper hand.

I suspended the websites for five of his clients last week and after negotiation to pay this week I put them back online.

They were put back online and low and behold payment was not made. I am now about to remove them again and this time inform all the clients and publishers as well. Under intellectual property law the work developers create they have IPR on it
unless specifically noted in a contract that ownership passes to the client.

This is something you can build into a contract at the beginning and then the client knows you own it unless they pay. It’s also clear in court. If they don’t accept walk away.

@Cliff
Although you may not have physically signed the NDA the courts could find that you conducted your business as if it did and therefore it applies.

IMHE a lot of people confuse “wet ink on paper” with signing a contract. Simply turning up for work creates the contract and often on the last wording that was exchanged.

Taking on new clients can be a painful process. It’s worth making sure i’s are dotted and t’s crossed, with appropriate due diligence done before work starts. For lesser known clients I’ll usually run a credit check and go across online reviews to get a feel for their business practices. If I’m not happy with what I see then a polite decline is in order.

Disclaimer

In accordance with FTC guidelines, we state that we may have a financial relationship with companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.

Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.

Privacy & Advertising

More Related Sites

Disclaimer

I'm just a girl getting out of debt. Please consult with a competent professional before acting on any advice found on this or any other website.
In accordance with FTC Guidelines: Readers should assume that any posts or articles linking to companies providing products and/or services are affiliate marketing sites that pay commissions to me. Any products or services I review also pay a commission, a fee, or otherwise grant perks as payment. Readers should also assume that any book reviews I conduct on this site were the result of a free book given to me by the publisher. I donâ€™t automatically write a positive review as a result, but the book was probably provided free of charge.
Please take a moment and read the privacy policy.